How Is the E-Mod or X-Mod Calculated?
My E-Mod or X-Mod how it is calculated? X-Mod / E-Mod questions are becoming the most popular questions that I receive in person or by email. The new E-Mod rules published by NCCI have quite a few companies concerned over whether they will be paying more premiums even though there was no increase in their incident rate.
My last post discussed the E-Mod formula in its rawest form. The more complicated and complete formula is here. I always recommend on not delving into the minutia of the E-Mod (X-Mod) formula.
The main variables that will affect your Mod are:
- Number of accidents – having a large number of reported accidents will increase the Mod more dramatically than any other type of occurrence. The E-Mod (X-Mod) system was built around heavily penalizing employers with a large number of accidents when compared to similar companies
- Drop in payroll – this is a more common variable than a few years ago. The risk of accidents being spread over a smaller amount of payroll will indirectly increase the E-Mod. As with most financial situations, smaller employers pay more for the same coverage than larger employers
- Classification Code change – NCCI and the state rating bureaus have changed a number of class codes since 2006. Some class codes are actually less expensive while others have increased somewhat.
- Claims staffs are now smaller – the reduction in size means fewer claims adjusters to handle the Workers Comp claims. Claims that are examined less tend to have higher reserves – that is the nature of the business
- Premium auditors are overworked – as with the claims departments, auditors are being asked to cover more territory and or more employers. Having a brief claims audit can lead to overcharges.
- Upcoming NCCI Changes – there are many articles that I had written a few months ago on how the primary loss portion of the claims is going to double in 2013. Employers with E-Mods of 1.2 are going to see increases in E-mods and premiums. There are more increases for 2014 and 2015 which is going to increase the E-Mod even more if you are a higher risk employer.
- Employers have reduced safety departments – the best way to have a lower E-Mod and pay less premiums is to prevent an accident from occurring. Due to our present economy employers have been reducing their safety departments with some completely eliminating them. Reducing the size of a safety department can end up costing an employer for up to four years.
The bottom line is to not worry about the E-Mod (X-Mod) calculation. It is more cost-effective to worry about the inputs to the formula.
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